Freelancers juggle billing, deadlines, client requests, cash flow and more. With all of this on your plate, you want to make your job as easy as possible. And one way to do that is to open a business bank account. The right bank account can help you run your business finances more smoothly and efficiently and provide you with valuable information about the health of your freelance business.
Why freelancers need separate accounts
There are several important reasons why freelancers need separate accounts:
- Taxes. As a freelancer, you must report your income and expenses to the IRS, and generally you must also pay taxes (including self-employment taxes) to the IRS. As the IRS explains, “Federal income tax is a pay-as-you-go tax. You have to pay tax as you earn or receive income during the year. There may be penalties if you don’t do it on time. By using a separate account, you can track your income and expenses and it should be easier to budget for these payments. This can make bookkeeping easier.
- Professionalism. When you invoice clients, it will be more professional to ask them to make payments to your business (on behalf of a business) than to you personally. You will need an account with the company name to deposit or receive payments.
- Funding. Cash flow is often a challenge for freelancers. Customers may pay slowly, late or, in the worst case, not at all. This means that you may need to find short-term financing in the form of small business loans to smooth the cash flow. Many lenders will require business bank account statements before providing business financing. You will be ready for this request.
What type of bank account do freelancers need?
Most freelancers will want to start with a business checking account and a business debit card. As your business grows, you may want to add a business savings account. Also consider getting a business credit card as it can help smooth cash flow and provide valuable perks like cash back or travel rewards.
The account you choose doesn’t have to be from the bank or credit union where you hold your personal checking and savings accounts. Unless you plan to make regular cash deposits, you might not even need a business bank account nearby. In addition to traditional financial institutions, there are many online banks and financial institutions that offer online business bank accounts small business owners, including the self-employed. These often offer robust mobile banking and mobile deposit functionality so you can use your account wherever you are.
We’ll share more tips on how to choose the right bank account in a moment.
Best bank accounts for freelancers
Ultimately, the best business bank account for a freelancer is the one you use! When buying one, here are some great options to consider:
Axos Bank designed its Basic Business Chequing Account with small business owners in mind and as a result it often appears on lists of best business checking accounts. You can open your account 100% online and enjoy unlimited national ATM fee refunds, no monthly maintenance fees and no minimum balance requirements. Earn a $100 bonus when you open a basic business checking account – just maintain a minimum average balance of $5,000 for at least 90 days after account opening.
Lili has no minimum balance or hidden fees. You can get free overdrafts up to $200, create and send unlimited invoices, and even get paid two days early when you use Lili to deposit funds from online payment platforms like Etsy or Upwork. Use the tax estimator to set aside money for taxes. You can also use your Lili debit card to withdraw cash for free at 38,000 ATMs in the United States and Puerto Rico.
Novo offers super easy business banking through its free checking account with debit card access, no hidden fees and no minimum balance requirements. Novo lets you integrate with the business tools you already use, like Xero and TransferWise, and gives you a dashboard to see your business’ financial health at a glance. You can apply for an account in less than 10 minutes on any device so you can start managing your business finances in one place and on the go.
Bank of America
Bank America offers banking solutions to help you grow your small business. Enjoy accounts designed to meet a variety of needs.
You can even earn up to $500 in bonuses from Bank of America:
- Earn up to $200 when you open a new Bank of America business checking account over the phone and meet eligibility criteria
- Earn $300 Statement Credit: When you’re approved and open an eligible Bank of America small business credit card and make at least $3,000 in net new purchases with the card within the first 90 days of opening of the card account.
There are a variety of reasons to consider Chase for your small business banking needs:
- Win $300 when you open a new Chase Business Complete Checking account. For new Chase businesses verifying customers with qualifying activities.
- Several ways to waive fees. Plus, you’ll find several options for waiving the monthly service fee, including maintaining a minimum daily balance or making purchases on your Chase Ink® Business credit card.
- Integrated card acceptance.You can also accept card payments anytime, anywhere in the US and get transparent pricing with Chase QuickAcceptSM.
- Same day deposits with QuickAcceptSM. Free up the money you need to move your business forward with same-day deposits at no extra cost.
- Alerts to help you stay on top of your account activity. Easy account management through Chase Business Online and the Chase Mobile® app. Unlimited electronic deposits, ACH and Chase Quick DepositSM. Convenient access to 16,000 ATMs and over 4,700 branches.
How to open a bank account as a freelancer
Freelancing can be one of the easiest businesses to start. You can often use your personal information and you don’t have to formally incorporate your business as an LLC or S Corp, for example. If you’re operating as a sole proprietor, you can use your social security number and personal financial information to get started.
Opening a business bank account can also be easy as a freelancer, especially if you open it with a financial institution that doesn’t require a lot of documentation.
Nevertheless, it may be useful to follow the following steps before open a business bank account:
Get an Employer Identification Number (EIN) from the IRS if necessary. This is a type of tax identification number (TIN) used for some businesses. This may or may not be necessary if you are self-employed. (The IRS offers helpful information on obtaining an EIN here.)
Choose a business name and file a fictitious name or “DBA” for your business. This puts your business name on file with your state.
Obtain commercial licenses. You may need to obtain a business license, professional licenses, and/or professional licenses, depending on state rules and how you choose to operate. Failure to do so could prove costly, so be sure to check the rules to ensure you comply.
What to consider when choosing a bank account as a freelancer
There’s no one best bank account for everyone, but you can find one that’s right for you by asking yourself a few questions about what features you need and how much you’re willing to pay for it.
What features are important to you?
Think about the account options you will need. Popular features may include:
- Low opening deposit requirements
- Sub-accounts to help you budget for taxes or recurring bills
- A robust mobile app
- Mobile Check Deposits
- Integration with accounting software such as quickbooks
- Convenient networked ATMs
- FDIC insurance
- 24 hour customer support
- SMS notifications
- Online bill payment
If you’re still in the start-up phase, make sure the account you choose will work for a new business. (That usually means a low initial minimum deposit, low fees, and convenient access.)
What are the fees?
As a freelancer, every penny counts, so make sure you understand the fees and how to avoid them when possible. Same free business checking accounts will incur charges!
Start by understanding what monthly balance is needed to minimize or eliminate monthly fees. Then read the fee schedule which may include:
- Overdraft fees
- ATM fees
- Transaction fees
- Bank transfer fees
Note that you may be able to reduce or eliminate ATM fees by using free ATMs (usually those in a certain network, such as Moneypass ATMs) or by using a debit card and requesting cash back. money at the point of sale.
Remember that you want to use this account only for business transactions. Always use your personal checking account for your personal expenses. Not only is it good business practice, but separating expenses makes it easier at tax time!
How to choose the best bank account for your freelance business
Again, the best bank account is the one you will use. So take the time to think about which features are important to you. Understand the costs involved. Narrow down your top picks.
But just as you’ve probably seen your clients change their minds or focus on minute (and unimportant) details, don’t let analysis paralysis overwhelm you. Choose the best possible option and open an account so you can continue to grow your freelance business.
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